The Easiest Way to Lock In Fixed Rates on Investment Loans

Fixed rate investment loans protect your rental property repayments from rate rises for a set period, usually between one and five years.

Kogarah has always been a popular spot for investors who want proximity to the airport, the train line, and a mix of unit and house stock that suits different budgets. Rental demand is steady, driven by hospital workers, airport staff, and families who want access to schools and transport without paying inner-city prices. When you lock in a fixed rate on an investment loan, you are securing your repayments for that period, which can make budgeting and cashflow planning more predictable, particularly if you hold multiple properties or need to show stable income for lending purposes.

How Fixed Rate Investment Loans Differ from Variable Loans

A fixed rate holds your interest rate steady for the agreed term, while a variable rate moves up or down as lenders adjust pricing. On an investment loan, that difference changes how you manage cashflow and tax deductions. Variable rates typically give you more flexibility to make extra repayments, redraw funds, or pay out the loan early without penalty. Fixed rates usually restrict those options, but the certainty can be valuable if you are holding a property through a period of rising rates or want to lock in cashflow over a defined timeframe.

Consider an investor who bought a two-bedroom unit near Carlton station with a loan of $650,000. At the time, variable rates were rising quickly, and the investor was concerned about repayment increases affecting rental yield. They locked in a three-year fixed rate, which meant their repayments stayed unchanged even as variable rates climbed by over 1.5 percentage points in the following 18 months. The rental income covered the repayments, and the investor avoided the cashflow pressure that other landlords were managing on variable loans during that period.

What Lock-In Periods Mean for Cashflow Planning

The lock-in period is the length of time your fixed rate applies. Most lenders offer terms from one to five years, with three years being the most common choice for investors. During that time, your rate does not change, which means your repayments do not change either if you are on principal and interest, or your interest cost stays fixed if you are on interest-only.

That certainty helps when you are modelling rental income against expenses. If your rental income is $650 per week and your repayment is $3,200 per month, you know exactly what the gap is for the duration of the fixed period. It also makes it simpler to plan for other expenses like body corporate fees, council rates, and insurance, because the largest variable cost is now fixed. The downside is that you lose flexibility. Most lenders will not let you make extra repayments beyond a small annual threshold during the fixed term without incurring a fee, and if you need to sell or refinance before the term ends, you may face break costs.

Fixed Rate Break Costs and How They Are Calculated

Break costs apply when you exit a fixed rate loan before the term ends. The calculation is based on the difference between the rate you locked in and the current wholesale rate the lender can earn on the money they lent you. If rates have fallen since you fixed, the lender loses income by letting you out early, and they pass that cost to you. If rates have risen, there is usually no break cost because the lender is not worse off.

The formula lenders use is not published in a standard form, but it generally involves multiplying the rate difference by the remaining loan balance and the remaining term, then discounting that figure back to present value. For an investor with $600,000 remaining on a fixed loan at 5.8 per cent, with two years left on the term, and a current wholesale rate of 4.5 per cent, the break cost might be in the range of $15,000 to $20,000. That is a significant cost, and it is one reason why we tell investors to think carefully about how long they plan to hold the property before they lock in a rate. If you think you might sell or refinance within the fixed term, a variable loan or a shorter fixed period might make more sense.

Interest-Only Fixed Rates on Investment Property

Most lenders will allow you to fix an interest-only investment loan, but the fixed period for interest-only is often capped at five years, and in some cases shorter. After the fixed term ends, the loan typically reverts to principal and interest unless you apply to extend the interest-only period, which is not always approved.

Interest-only repayments are lower than principal and interest, which can improve cashflow during the fixed term, particularly if you are holding multiple properties or relying on rental income to service the loans. The trade-off is that you are not reducing the loan balance during that time, so the property needs to appreciate in value or generate enough rental income to justify the holding cost. From a tax perspective, all the interest on an interest-only investment loan is deductible, provided the property is rented or genuinely available for rent. That deduction is often the main reason investors choose interest-only, particularly in the early years of ownership when cashflow is tight.

Splitting Fixed and Variable Rates on the Same Loan

Some lenders let you split your investment loan between fixed and variable portions, which gives you a mix of certainty and flexibility. A common split is 50/50, but you can choose any proportion that suits your circumstances. The fixed portion gives you rate stability, and the variable portion lets you make extra repayments, access an offset account, or pay down the loan faster without incurring break costs.

In our experience, the split structure works well for investors who want to reduce debt over time but still want protection from rate rises. You might fix half the loan for three years and leave the other half variable, then direct any surplus rental income or savings toward the variable portion. That way, you are reducing the overall balance and interest cost, while still holding a fixed rate on part of the debt. The administrative side is straightforward because both portions sit under the same loan account, and you manage them through the one lender.

Rate Discounts and Investment Loan Pricing

Fixed rates on investment loans are typically priced higher than fixed rates on owner-occupier loans, because lenders treat investor lending as higher risk under the prudential rules. The difference is usually between 0.2 and 0.5 percentage points, depending on the lender and your loan-to-value ratio. Investment loans above 80 per cent LVR generally attract higher rates again, and if you are borrowing above 90 per cent, your options narrow significantly.

Rate discounts on fixed investment loans are less common than on variable loans, but some lenders will negotiate if you have a larger loan balance, a strong income position, or you are refinancing multiple properties to the one lender. The discount is usually applied to the standard fixed rate at the time you lock in, and it stays with you for the fixed term. After the fixed period ends, the loan typically reverts to a standard variable rate, and you will need to renegotiate or refinance if you want a better rate at that point.

When Fixed Rates Make Sense for Kogarah Investors

Fixed rates suit investors who value certainty over flexibility and who plan to hold the property for at least the length of the fixed term. If you are buying in Kogarah and expecting rental income to cover most of your repayments, locking in a rate gives you protection against rising costs and makes it simpler to model your cashflow over the next few years. If you think rates are likely to rise, or if you want to avoid the stress of monthly repayment increases, a fixed rate can give you that buffer.

The other time a fixed rate makes sense is when you are holding multiple properties and need stable repayments to meet serviceability requirements for future borrowing. Lenders assess your capacity based on your current commitments, and a fixed rate gives them confidence that your repayments will not increase unexpectedly during the term. That can be the difference between being approved for another loan or being told you are at your limit.

Call one of our team or book an appointment at a time that works for you. We work with investors across Kogarah and can help you compare investment loan options and structure your lending to suit your property and income situation.

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